Thursday, 16 November 2017

Lessons from the “Paradise Papers” Leak

It has been nearly two weeks since the news broke that yet
another offshore law firm’s accounts had been hacked and subsequently leaked.
After the ‘Panama
Papers’ scandal that broke in 2016, this latest leak – the so-called ‘Paradise
Papers’ – has the capacity to engulf a large number of particularly influential
and recognisable people. Yet, it is worth questioning a. what this leak
actually portrays, b. what the effect of the leak may be, and c. what the leak
tells us about the larger picture? To answer those questions, the following
seeks to introduce the leak, and provide some context for the claims that are
consistently emanating from it.

The so-called ‘Paradise Papers’ leak, which is the catchy
title being given to the leak of documents from a Caribbean-based Law firm
called Appleby (its ‘fiduciary’ arm is called ‘Estera’
after a recent management buyout), is the second-largest document data leak,
with the so-called ‘Panama Papers’, derived from the Law firm Mossack Fonseca, holding that
unfortunate honour of being the largest data leak on record (2.6 TB of files
were released then, as opposed to 1.4TB from Appleby). However, some
perspective is required within a world were sensationalism is currently the
order of the day. So, firstly, what is the reality of offshore investing, and
does that relate to these stories of, seemingly, widespread tax avoidance?
Secondly, what can we take from these leaks with regards to the ‘bigger
picture’?

Offshore investing, in very general terms and in order to
provide a realism check, is legal.
The ability to invest one’s funds offshore, traditionally in a small
jurisdiction that does not have the most sophisticated regulatory structure, is
noted
as being a viable and useful investment strategy for a number of reasons.
Whether it is to diversify one’s exposure to risk, to protect one’s assets from
political variabilities (like war or political instability, for example), or to
protect against market volatility, there are a number of benefits to investing
offshore. However, ‘investing offshore’ masks a number of variances which
really should be revealed: offshore investing may relate to an investment fund
being ‘domiciled’ abroad, which is legal, but offshore investing is sometimes
cited when people attempt to remove their income from tax authorities, which is
not legal. Whilst some who are caught in the crosshairs of this latest scandals
have not, necessarily, been accused of operating illegally, it is really the
close connection between the business and political elite and these
tax-avoiding schemes which is causing the scandal to have such an impact. Whilst
allegations of illegality will likely be forthcoming, at the moment the focus
is on both a. proximity between the scheme and the elite, and also b. the issue
of declaration, as witnessed by the story
enveloping Lord Ashcroft at the moment. Yet, the proximity-issue points to
a much larger issue, and one which, rather regrettably, is difficult to paint
in a positive manner.

The former British Prime Minister, David Cameron, once
opined that tax avoidance – in relation to the comedian Jimmy Carr being outed
as using an aggressive tax-avoidance scheme – is ‘morally
wrong’, with his successor, Theresa May, vowing
to combat tax-avoidance almost immediately after taking office. However,
the first point to note is that it will be incredibly interesting to hear
Theresa May’s responses to this latest leak, one which puts some of her Party’s
most revered figures in the centre of the scandal (one doubts she will be as
forthcoming this time – more on this below). The second point is more abstract;
the absolutely incredible amount of people and corporations caught up in this
scandal can only tell us one thing: tax avoidance, or at least doing everything
possible to reduce one’s tax burden, is inherent
within society (particularly, rather obviously, for those with large reserves
of funds). This should not really be revelatory, but the response to the
Paradise Papers suggests that maybe it is. This latest instance of proof that
influential people systematically ‘game the system’ should be the spark that
initiates deep-rooted reform of the market-centred society we live in, but one
should be able to realise how fanciful that thought is when looking at the
impact of the Panama Papers.

Yet, the development of a story that is just over 10 days
old continues unabated, with more and more of the elite being linked to the
scandal. Billionaires like Robert
Kraft, sports stars turned celebrities like Gary
Lineker, Lewis
Hamilton, and performers like Shakira,
Nicole
Kidman and Madonna have all been caught up in the scandal to varying
degrees. Furthermore, it was stated above that it would be interesting to hear
of Theresa May’s views on the scandal, speaking from a British perspective, and
that interest was only heightened today by the news that ‘Theresa
May’s Husband has “serious questions to answer” on tax avoidance’; Business Insider leads with a story this
evening that ‘investment
advisors Capital Group, where Mr May is a relationship manager, used offshore
law firm Appleby to arrange investments in tax havens’. Quite what Mr May
does in his role as ‘relationship manager’ of a private equity firm, at the
same time as being the Husband of the Prime Minister of the United Kingdom, is
not quite revealed by the publication, but certainly adds another dimension to
the unfolding scandal. Furthermore, it is probably more proof, if proof were
needed, that tax evasion, tax avoidance, high finance and high politics are
essentially all one and the same. Yet, a massive story published today
regarding a ‘landmark
study’ that links Conservative-driven austerity to over 120,000 deaths
since 2010 that could have been avoided if wealth was not being systemically
extracted from society – quite a time to break a story after the scandal that
confirmed the widespread removal of private funds from national tax
authorities. The report regarding the links between austerity and increased
mortality rates will be covered in a future post, but for now it is enough to
say that this Paradise Papers scandal should
be garnering far more action, far more anger, and ultimately far more effectual
change than it is doing; as to why that is, one must look to the system for
answers.

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